Produce Business UK speaks with payroll provider Way2paye to examine the obligations for UK employers when the new automatic enrolment pensions kick in
What is auto-enrolment?
The law on workplace pensions in the UK has recently changed. Every employer now has new duties. This includes enrolling those who are eligible into a workplace pension scheme and contributing towards it.
It is called automatic enrolment because it is automatic for staff; they don’t have to do anything to be enrolled into your pension scheme. However, it is not automatic for employers. Businesses therefore need to take steps to make sure their eligible members of staff are enrolled into a pension scheme.
More than 47,000 large and medium-sized employers have already completed the process of automatically enrolling their workers. So, the government’s emphasis has now moved to the 1.3 million small and even micro businesses that will have to offer their staff a workplace pension between now and 2018.
What government says
Automatic enrolment is one aspect of the UK government’s long-term economic plan to help workers to start saving into a pension.
Minister of state for pensions, economist and long-time pensions policy adviser Dr Ros Altmann has been very encouraged by the response so far from companies and their employees.
She says: “With more than 5 million people automatically enrolled into a workplace pension, we have made great strides forward in a short space of time, but there is still much hard work to do.
“The switch to small and micro firms brings with it new challenges, which is why we’re working closely with business organisations and others to ensure they have the right level of support at every step of the way to help them through the process.”
Small employers are being phased in from June 1, 2015 until February 1, 2018 and will need to comply with this law or face fines of £400, plus £50 a day for any non-compliance.
Duties of employers
The Pensions Regulator has been writing to employers to inform them of their staging date, but businesses can also ask their payroll provider for their staging date or visit The Pensions Regulator website to find it.
When The Pensions Regulator writes to an employer, that business must provide the regulator with a point of contact. The primary contact should be the employer; the secondary contact can be the payroll provider. It is possible to nominate a contact on The Pension Regulator website.
Employers have to assess all their staff for eligibility but they may not have to enrol them automatically. This table outlines an employer’s duties depending on the salary of the employee.
It is against the law to try to influence staff into opting out of the pension scheme and employers are charged with carrying out a full assessment of all staff when the staging date is reached.
It may be that a business does not have to enrol anyone automatically, but there will still be other duties to fulfil for your employees and The Pension Regulator.
Companies need to calculate the pensions through their payroll provider; however it is the employer’s responsibility to decide whom it wishes to use to provide a pension for its employees.
The government has set up a pension scheme called the National Employment Savings Trust (NEST) to accept all small employers wishing to use the scheme for automatic enrolment. This is one option, and there are other providers available. There are more details on choosing a pension scheme here.
What the costs are
For automatic enrolment there are minimum contributions as outlined in this table that a business has to pay in order to comply with its duties.
The amount an employer needs to pay into the pension scheme is based on the employee’s gross pay.
The costs for the pension are based on three people paying in: the employer, the employee and the government. All three parties contribute on a percentage, which is detailed here. The percentage contribution does not have to be paid on the whole salary. It can be paid on something called “qualifying earnings”. Using qualifying earnings means that the employer only pays a pension contribution on part of the gross salary, rather than the whole salary.
Records and compliance
Businesses are obliged to keep records for their automatic enrolment activities including correspondence to employees, information sent to the pension provider and copies of any opt-out requests.
Information has to be sent to the pension provider and payment for the pension contributions must be made on time.
Employers must also complete the declaration of compliance with The Pensions Regulator within five months of their staging date.
It is worth remembering that payroll providers may be able to complete many of the above tasks for an employer.
A spokeswoman for Way2paye says: “We are already working with a few clients who have already had their staging date of June 1, 2015. We have had various meetings with The Pension Regulator and will be able to guide all clients through this process in the future.
“Way2paye will be able to calculate any chosen pension scheme for our clients within our payroll software. However, for clients wishing us to carry out various required tasks, we are currently using NEST and we can guide you through the enrolment process and assist you where possible.”